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A predetermined monetary policy would be great when a financial crisis or credit crunch hit, causing a collapse in the velocity of money /s While I have invest

A predetermined monetary policy would be great when a financial crisis or credit crunch hit, causing a collapse in the velocity of money /s While I have invested in crypto and believe it has great potential, one of its touted benefits by its supporters is also one of its biggest pitfalls, namely that its money supply is predetermined. The inability to actively manage a money supply given exogenous shocks to the economy is a big problem.

hanniabu 8y ago
I think it makes sense. You have an economy built on an economic model rather than an economic model based on an economy. With the latter you're constantly guessing and tweaking the model and roughly every 10 years there's a crash and the economists say okay, NOW we have it perfect and we'll never get it wrong again. Why do you need an unlimited money supply? The only thing causing these shocks is that the economy is doing whatever it wants and then the economic model collapses.
- sbenitoj 8y ago
  Exactly, any supply of money will do, no need to permanently increase the amount in circulation — this is why the market settled on gold (which has an inherently low inflation rate due to the difficulties of mining) and impossible to pass off counterfeit gold at scald.
  - ur-whale 8y ago
    >this is why the market settled on gold Gold, which, by the way, has an extraordinarily high energy and environmental cost to extract.
    - sbenitoj 8y ago
      That’s not a bug, it’s a feature — if it were easy to extract (like aluminum), it would have been much more inflationary and thus not a “good” choice for money.
      - ur-whale 8y ago
        I didn't claim it was a bug. I was trying to make the point that all the tree huggers that scream bloody murder because of Bitcoin mining costs never look at the actual environmental cost of existing systems.
        sbenitoj 8y ago
        Ah gotcha, misunderstood your comment — good point!
        creato 8y ago
        Gold is a fringe commodity valued by a similar small subset of the population that values bitcion. And yeah, I'd say that those people are also causing similar problems to bitcoin because they incentivize significant environmental destruction. Even worse than bitcoin, they also increase the costs of real commercial use cases for gold.
        stolsvik 8y ago
        > Gold is a fringe commodity valued by a similar small subset of the population that values bitcion. https://en.wikipedia.org/wiki/Gold_reserve#Officially_reported_holdings https://en.wikipedia.org/wiki/Gold_reserve#Officially_report...
  - hanniabu 8y ago
    You need inflation for proper incentives. It's like a tax on the entire network to keep it supported. Without proper incentives, the game theory collapses. The difference here is that inflation is predetermined and set instead of printing money on demand like we do in the traditional financial system.
    - sbenitoj 8y ago
      “You need inflation for proper incentives. It's like a tax on the entire network to keep it supported. Without proper incentives, the game theory collapses.” What, specifically, do you think the consequences of a stable money supply are?
      - hanniabu 8y ago
        No incentive to support the network if there's no block rewards. The transaction fees are not sufficient and just meant to prevent spam. It's also better to tax the network as a whole (through this set inflation) than to tax for each usage.
        sbenitoj 8y ago
        I misunderstood you at first. That’s an interesting speculation, but it remains to be seen what will happen when inflation is near zero. If people value transacting on the network, then they will pay the necessary fees to keep it running. If they don’t then it will go down. I suspect this isn’t the big issue people think it is, regardless there’s no way to “prove” that transaction fees won’t be enough — everyone from miners to speculators by owning mining equipment and Bitcoin are specifically betting that transaction fees will be enough.
        hanniabu 8y ago
        There's an assumption here that the network will be used and valuable. If the network is used more it will be more valuable, which means the reward value will increase as the inflation decreases. If nobody uses the network then it'll be worthless, which at that point it doesn't matter since nobody is using it.
  - Scarblac 8y ago
    The market has settled on gold? For money? What? The market moved on to other forms of money centuries ago.
    - Qasaur 8y ago
      This is categorically false. The gold standard (albeit a reduced version of it established under the Bretton-Woods monetary regime) was abolished in the United States as recently as 1971. In Switzerland this link was abolished in the early 2000's AFAIK.
      - sbenitoj 8y ago
        It was only loosely linked to gold even at that point, fractional reserve banking has been going on for a long, long time!
      - Scarblac 8y ago
        Yes, but using it as a symbolic backing of fiat currency is not the same as using it as money.
- zjaffee 8y ago
  Economic growth is very heavily tied to increases in the money supply less inflation for developed countries. Without this debt, the cost of doing anything in our economy would be way too large and it would be very difficult for our society to operate. Additionally the need for economic solvency to protect the current social structure is what necessitates government involvement.
sbenitoj 8y ago
I 100% disagree, the central planning of money is (1) what causes inflation, and (2) greatly exacerbates (and in many cases creates) financial crises. Any supply of money will do, the idea that money should increase in supply along with population growth (or some other arbitrary metric) otherwise we’ll permanently live in a deflationary disaster is an imagined monster — we live in the here and now, therefore people have to spend some amount of money to live (food, housing, entertainment, etc) regardless of whether they perceive the purchasing power of money to increase in the future. By centrally planning (and thus inflating) the amount of money in circulation during financial crises the only thing that is accomplished is a re-inflation of the bubble — essentially they’re sowing the seeds of destruction again, causing the next bubble in an attempt to cure the last one. Please read this explanation of the financial crisis, I’d be happy to comment further if you have specific critiques on this article (and no I didn’t write it): https://www.unqualified-reservations.org/2008/10/misesian-explanation-of-bank-crisis/ https://www.unqualified-reservations.org/2008/10/misesian-ex...
- ryan_j_naughton 8y ago
  A low, but positive, inflation rate is of critical importance. > Any supply of money will do. That is just nonsense. If you have a fixed money supply, given that economic growth is happening, would result in a naturally deflationary currency. That is a terrible place to be for the system as a whole as no one has any incentives to spend or invest in anything as money itself will simply gain value over time just sitting as cash. Thus, that money isn't being used / circulated. Having a ideal velocity of money has significant multiplier effects and deflationary currencies are fundamentally flawed. The problem then is: if you want a low rate of inflation but there is a natural variation in the growth rate due to the cyclic nature of the economy, then how to create a system that could do that without a monetary authority.
  - sbenitoj 8y ago
    Prove it, show me the world where we had a stable monetary supply that resulted in people having no incentive to invest in anything — where’s the experiment? Again, you HAVE to spend money to live (otherwise you die). It’s impossible to live without food and water, most people want to live in a house, most people want entertainment, etc. None of those things can be had without spending money. Also, if your argument is correct, why don’t people put 100% of their money into the stock market (which reliably goes up over long periods of time) and instead choose to spend it?
omarchowdhury 8y ago
> The inability to actively manage a money supply given exogenous shocks to the economy is a big problem. Have we seen this to be a problem within the context of Bitcoin?

hanniabu 8y ago

I think it makes sense. You have an economy built on an economic model rather than an economic model based on an economy. With the latter you're constantly guessing and tweaking the model and roughly every 10 years there's a crash and the economists say okay, NOW we have it perfect and we'll never get it wrong again. Why do you need an unlimited money supply? The only thing causing these shocks is that the economy is doing whatever it wants and then the economic model collapses.

sbenitoj 8y ago
Exactly, any supply of money will do, no need to permanently increase the amount in circulation — this is why the market settled on gold (which has an inherently low inflation rate due to the difficulties of mining) and impossible to pass off counterfeit gold at scald.
- ur-whale 8y ago
  >this is why the market settled on gold Gold, which, by the way, has an extraordinarily high energy and environmental cost to extract.
  - sbenitoj 8y ago
    That’s not a bug, it’s a feature — if it were easy to extract (like aluminum), it would have been much more inflationary and thus not a “good” choice for money.
    - ur-whale 8y ago
      I didn't claim it was a bug. I was trying to make the point that all the tree huggers that scream bloody murder because of Bitcoin mining costs never look at the actual environmental cost of existing systems.
      - sbenitoj 8y ago
        Ah gotcha, misunderstood your comment — good point!
      - creato 8y ago
        Gold is a fringe commodity valued by a similar small subset of the population that values bitcion. And yeah, I'd say that those people are also causing similar problems to bitcoin because they incentivize significant environmental destruction. Even worse than bitcoin, they also increase the costs of real commercial use cases for gold.
        stolsvik 8y ago
        > Gold is a fringe commodity valued by a similar small subset of the population that values bitcion. https://en.wikipedia.org/wiki/Gold_reserve#Officially_reported_holdings https://en.wikipedia.org/wiki/Gold_reserve#Officially_report...
- hanniabu 8y ago
  You need inflation for proper incentives. It's like a tax on the entire network to keep it supported. Without proper incentives, the game theory collapses. The difference here is that inflation is predetermined and set instead of printing money on demand like we do in the traditional financial system.
  - sbenitoj 8y ago
    “You need inflation for proper incentives. It's like a tax on the entire network to keep it supported. Without proper incentives, the game theory collapses.” What, specifically, do you think the consequences of a stable money supply are?
    - hanniabu 8y ago
      No incentive to support the network if there's no block rewards. The transaction fees are not sufficient and just meant to prevent spam. It's also better to tax the network as a whole (through this set inflation) than to tax for each usage.
      - sbenitoj 8y ago
        I misunderstood you at first. That’s an interesting speculation, but it remains to be seen what will happen when inflation is near zero. If people value transacting on the network, then they will pay the necessary fees to keep it running. If they don’t then it will go down. I suspect this isn’t the big issue people think it is, regardless there’s no way to “prove” that transaction fees won’t be enough — everyone from miners to speculators by owning mining equipment and Bitcoin are specifically betting that transaction fees will be enough.
        hanniabu 8y ago
        There's an assumption here that the network will be used and valuable. If the network is used more it will be more valuable, which means the reward value will increase as the inflation decreases. If nobody uses the network then it'll be worthless, which at that point it doesn't matter since nobody is using it.
- Scarblac 8y ago
  The market has settled on gold? For money? What? The market moved on to other forms of money centuries ago.
  - Qasaur 8y ago
    This is categorically false. The gold standard (albeit a reduced version of it established under the Bretton-Woods monetary regime) was abolished in the United States as recently as 1971. In Switzerland this link was abolished in the early 2000's AFAIK.
    - sbenitoj 8y ago
      It was only loosely linked to gold even at that point, fractional reserve banking has been going on for a long, long time!
    - Scarblac 8y ago
      Yes, but using it as a symbolic backing of fiat currency is not the same as using it as money.
zjaffee 8y ago
Economic growth is very heavily tied to increases in the money supply less inflation for developed countries. Without this debt, the cost of doing anything in our economy would be way too large and it would be very difficult for our society to operate. Additionally the need for economic solvency to protect the current social structure is what necessitates government involvement.

sbenitoj 8y ago

I 100% disagree, the central planning of money is (1) what causes inflation, and (2) greatly exacerbates (and in many cases creates) financial crises. Any supply of money will do, the idea that money should increase in supply along with population growth (or some other arbitrary metric) otherwise we’ll permanently live in a deflationary disaster is an imagined monster — we live in the here and now, therefore people have to spend some amount of money to live (food, housing, entertainment, etc) regardless of whether they perceive the purchasing power of money to increase in the future. By centrally planning (and thus inflating) the amount of money in circulation during financial crises the only thing that is accomplished is a re-inflation of the bubble — essentially they’re sowing the seeds of destruction again, causing the next bubble in an attempt to cure the last one. Please read this explanation of the financial crisis, I’d be happy to comment further if you have specific critiques on this article (and no I didn’t write it): https://www.unqualified-reservations.org/2008/10/misesian-explanation-of-bank-crisis/ https://www.unqualified-reservations.org/2008/10/misesian-ex...

ryan_j_naughton 8y ago
A low, but positive, inflation rate is of critical importance. > Any supply of money will do. That is just nonsense. If you have a fixed money supply, given that economic growth is happening, would result in a naturally deflationary currency. That is a terrible place to be for the system as a whole as no one has any incentives to spend or invest in anything as money itself will simply gain value over time just sitting as cash. Thus, that money isn't being used / circulated. Having a ideal velocity of money has significant multiplier effects and deflationary currencies are fundamentally flawed. The problem then is: if you want a low rate of inflation but there is a natural variation in the growth rate due to the cyclic nature of the economy, then how to create a system that could do that without a monetary authority.
- sbenitoj 8y ago
  Prove it, show me the world where we had a stable monetary supply that resulted in people having no incentive to invest in anything — where’s the experiment? Again, you HAVE to spend money to live (otherwise you die). It’s impossible to live without food and water, most people want to live in a house, most people want entertainment, etc. None of those things can be had without spending money. Also, if your argument is correct, why don’t people put 100% of their money into the stock market (which reliably goes up over long periods of time) and instead choose to spend it?

omarchowdhury 8y ago

> The inability to actively manage a money supply given exogenous shocks to the economy is a big problem. Have we seen this to be a problem within the context of Bitcoin?